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Financial advisors can help clients develop an overall financial strategy and address specific needs, such as retirement planning, tax strategy and more. Here’s what you need to know about financial advisors, including when it’s best to hire one and how to find a financial advisor near you.
What is financial advice?
Financial advice includes developing an overall financial plan, including retirement planning, estate planning, tax strategies, debt management and more. Financial advisors are very similar to financial advisors and the two terms are often used interchangeably.
A financial advisor can also have the designation Chartered Financial Consultant (ChFC), but the designation is not required to call yourself a financial advisor. Make sure you understand a financial professional’s education and professional certifications before hiring them.
Financial consulting can also refer to management consulting, where consultants are hired by a company or organization to work on specific projects or develop solutions to financial challenges.
What do financial advisors do?
A financial advisor first gets a complete picture of a customer’s financial situation. They will try to understand your assets and liabilities, your short- and long-term financial goals, as well as your risk tolerance.
From there, financial advisors can help you come up with a plan that meets your needs and goals. They can help you set up retirement accounts, determine how much you need to save to reach your goals, or identify suitable investments for your portfolio.
You will likely face a variety of financial needs throughout your life, many of which financial advisors can help you with. Financial advisors can help with everything from saving for retirement to estate planning and dealing with unexpected job loss.
Financial Advisor vs. Financial Advisor: How They Differ
Financial professionals use different terms to refer to themselves, so there is often little difference between a financial advisor and a financial adviser. But like other professions, just because you’re a financial advisor or advisor doesn’t mean you’re a good one. You will want to understand the training and education of a financial advisor before hiring one, paying particular attention to the professional certifications they hold.
Financial advisors may have the designation ChFC, Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP). They may have additional licenses that allow them to sell investments. One of the best questions to ask a financial advisor is whether he or she is a fiduciary, meaning he or she is legally obligated to put the client’s interests above their own or their company’s.
When should you get help from a financial advisor?
Hiring a financial advisor depends on your individual circumstances and needs. In general, the smaller your investment portfolio and the simpler your financial life, the less likely you are to need a financial advisor. You can benefit from using a robo-advisor, which automates the investment process based on your goals and risk tolerance, at a lower cost than traditional advisors.
However, if you have a more complicated financial situation or need help in specific areas, such as tax strategy or estate planning, a financial advisor may be particularly helpful to you. Some consultants may require a certain amount of assets before they will agree to take you on as a client. So you may have to wait until your portfolio reaches a certain level before you can start working with it.
You may also be able to schedule one or two sessions at an hourly rate if you have a handful of questions about the financial implications of specific life events such as getting married, having children or receiving an inheritance.
Fees and costs of financial advisors
The average costs of financial advisors depend on the compensation structure they use. Some advisors charge a fixed deposit or per hour. The cost of a flat fee can range from $2,000 to $7,500 per year, or higher, depending on the complexity of your financial situation and the services the advisor will provide.
With a percentage-based fee, you pay a percentage of your account balance, usually between 0.25% and 1% per year. The majority of firms charge a percentage of assets under management (AUM) for ongoing advisory services.
How to find a financial advisor
One of the best ways to find a good financial advisor in your area is to ask friends and family for referrals. Chances are they’ll provide unbiased advice on who to hire and whether they’ve worked with consultants in the past they would recommend. You may also be able to find consultants and advisors by searching websites such as CFPs Letsmakeaplan.org.
It is easy to find a qualified financial advisor to guide you through the most important financial decisions in your life.
Try Bankrate’s free AdvisorMatch service to quickly connect with a CFP® professional who can help you achieve your financial goals.
